Rate hikes are moderating, warns otherwise bullish Chubb CEO Greenberg

Insurers should enjoy continued premium growth and margin expansion for the foreseeable future, despite rate hikes showing signs of moderating,  Chubb chairman and CEO Even Greenberg told an earnings call.

“Growth and margin expansion are two trends that will continue,” Greenberg told the teleconference.

“We continue to capitalize on broad based and favourable market conditions and improving economic conditions,” Greenberg said in the context of Chubb’s just-reported third quarter results and beyond. “All our businesses did well or are improving.”

He added: “My management team and I have never been more confident in our ability to outperform,” he said.

Rate growth may be showing signs of moderating, but still promise plenty of padding above loss costs for the foreseeable future, he added.

Greenberg’s broad view to rates and trends “over a numbers of quarters” points to “what I would call a moderation in the rate of increase,” he says of rates.

But the balance of rate hikes against Chubb’s strong policy retention rates, at over 97 percent on a premiums basis, “tells me about the tone of the marketplace,” Greenberg said, namely that “the industry should continue to achieve rates in excess-of-loss costs for some time to come.”

He acknowledged that, in response to rate increases, clients will frequently respond by adjusting policy terms such as attachment points, deductibles and limits, which Chubb adjusts for in its estimates of rate growth. Those policy adjustments often prove quite sticky once the market eventually softens, especially in middle market, the CEO warned.

In its third quarter report just published, Chubb laid claim to it second consecutive quarter of double-digit premium growth as it crafted 54 percent year-on-year increase in net income.

Its P&C net premiums written rose 16.9 percent globally to $9.9 billion, a 15.4 percent gain once adjusted for FX differences, what management called the "strongest organic growth since 2004." Commercial lines lead with 22 percent annual growth in North American and over 20 percent growth in international.

Greenberg launched his Wednesday earnings review with strong praise for “robust P&C pricing environment … in most regions of the world” and with special call-out for continued improvement in the North American core market. North American large-cap corporate rates are up some 13 percent, he said of one of many double-digit gains visible across his business.

He also hailed a “fantastic” quarter in North American agricultural policies, with net written premiums up over 40 percent year-on-year, was put to commodity inflation driving underlying crop valuations.

On the bottom line, Q3 net income for the group at $1.83 billion was up from $1.19 billion in the prior year period. Net investment income contributed $866 million, a $26 million increase from the prior year period. Management noted a strong contribution from private equity investments.

Running guidance for investment income remains in place with a quarterly run rate at “approximately $900 million,” the CFO Peter Enns added on the call.

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